Inflation in the UK has set a 30-year record, investors focus at NATO heads of state meeting today

by JustForex

Yesterday, by the close of trading the Dow Jones Index (US30) increased by 0.74%, the S&P 500 (US500) added 1.13%, and the NASDAQ Technology Index (US100) jumped by 1.95%. All three major indices closed the day in positive territory.

“The market is holding up pretty well, given that Russia continues to wage war with Ukraine and the Fed has started raising interest rates to combat high inflation,” said Scott Wren, senior global markets strategist at Wells Fargo Investment Institute. He also added that “a really good US labor market helps support stocks, while investors expect inflation to slow over the next two years.” Meanwhile, analysts are confident that the probability of a 50 basis point rate hike in May has increased following comments from Powell and Bullard on Monday and Tuesday. Federal Reserve Bank of St. Louis Governor James Bullard said the Fed should quickly tighten monetary policy to ease upward inflation pressure.

According to Morgan Stanley Wealth Management, investors should “resist chasing a reflexive rally” in the stock market because it is unclear whether the Federal Reserve can provide a soft landing for the economy while fighting high inflation. According to analysts, the potential for a “revival in services consumption” plus lower demand for goods could lead to “negative earnings surprises” for companies rebuilding their inventories during a pandemic.

The Fitch rating agency lowered its forecast for global GDP growth in 2022 to 3.5% from 4.2%, the Eurozone to 3% from 4.5%, and the United States to 3.5% from 3.7%.

The Russian foreign minister responded to the US ambassador that Biden’s recent statements to the Russian president (a “war criminal”) put US-Russian relations on the brink of breaking.

Today, a meeting of NATO heads of state will take place, which could result in tougher measures against Russia. According to analysts, US President Joe Biden will propose a new plan for additional sanctions against Moscow.

Major European indices closed on the upside yesterday. The German DAX (DE30) gained 1.02%, the French CAC 40 (FR40) added 1.17%, the Spanish IBEX 35 (ES35) increased by 1.17% and the British FTSE 100 (UK100) added 0.46%. Germany remains convinced that it cannot completely abandon Russian oil but is working to reduce its dependence on Russian energy resources. The UK consumer price index set another record. Inflation increased by 0.7% last month to 6.2% (previous 5.5%) in annual terms. Yesterday’s growth of the British pound was driven by investors’ attention to the announcement of the finished budget. Accelerating consumer and producer inflation supports the national currency in anticipation of stronger monetary policy tightening.

Gold prices are falling amid rising US government bond yields. Now buying gold and silver in the mid-term perspective is not the best idea because tightening monetary policy always leads to higher government bond yields, which have an inverse correlation to gold and silver.

Oil prices continue to rise on data on US inventory drawdown. The American Petroleum Institute (API) data showed a decline of 4.3 million barrels of US oil inventories last week, though analysts expected the average growth. Another report from the US Department of Energy on WTI crude oil inventories is expected today. Analysts forecast that the report will show an increase in reserves by 110,000 barrels. The situation in Ukraine and sanctions against Russia, including the possible complete or partial refusal of Europe from Russian oil and gas, remain in the focus of investors’ attention.

Asian stock indices closed in positive territory yesterday. Japan’s Nikkei 225 (JP225) gained 1.48%, Hong Kong’s Hang Seng (HK50) jumped by 3.15%, while Australia’s S&P/ASX 200 (AU200) added 0.86%. Despite pressure from rising energy prices, Asia-Pacific stock markets also rallied in today’s trading. Reporting season has begun in China. Shares of electronics manufacturer Xiaomi Corp. increased by 5.1%. The company sharply reduced its net profit for the fourth quarter, but revenue increased. Technology company Alibaba Group Holding Ltd. gained 6.4%. The company increased its share buyback program to $25 billion from $15 billion. Chinese automaker Geely Automobile Holdings’ annual net profit fell by 12%. The decline is due to a sharp increase in compensation paid to employees in company stock. Geely’s stock price in Hong Kong increased by 1%.

Main market quotes:

S&P 500 (F) (US500) 4,511.61 +50.43 (+1.13%)

Dow Jones (US30) 34,807.46 +254.47 (+0.74%)

DAX (DE40) 14,473.20 +146.23 (+1.02%)

FTSE 100 (UK100) 7,476.72 +34.33 (+0.46%)

USD Index 98.45 -0.05 (-0.05%)

• – Singapore Consumer Price Index (m/m) at 07:00 (GMT+2);
• – UK Consumer Price Index (m/m) at 09:00 (GMT+2);
• – UK BoE Gov Bailey Speaks at 14:00 (GMT+2);
• – US Fed Chair Powell Speaks at 14:00 (GMT+2);
• – UK Annual Budget Release at 14:30 (GMT+2);
• – US New Home Sales (m/m) at 16:00 (GMT+2);
• – US Crude Oil Reserves (w/w) at 16:30 (GMT+2);
• – US FOMC Member Daly’s Speaks at 17:45 (GMT+2).

by JustForex

This article reflects a personal opinion and should not be interpreted as an investment advice, and/or offer, and/or a persistent request for carrying out financial transactions, and/or a guarantee, and/or a forecast of future events.